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Biomass and Bioenergy 26 (2004) 301–304

Short communication

Ethanol learning curve—the Brazilian experience

Jos#e Goldemberga, Suani Teixeira Coelhob, Plinio M#ario Nastaric, Oswaldo Lucond ;∗

aSMA-The Sao Paulo State Environmental Secretariat, Cabinet. Av. Prof. Frederico Hermann Jr 345,S"ao Paulo SP 05489090, Brazil

bCENBIO, the Brazilian National Center on Biomass, University of S"ao Paulo, Av. Prof Luciano Gualberto 1289,S"ao Paulo 05508 010, Brazil

cDATAGRO, Calc4ada das Magn"olias 56 Alphaville, Barueri, SP 06453-000, BrazildSMA, CETESB Sao Paulo State Environmental Secretariat, Av. Prof. Frederico Hermann Jr 345, Sao Paulo 054 59 900, Brazil

Received 7 April 2003; received in revised form 9 May 2003; accepted 14 May 2003

Abstract

Economic competitiveness is a very frequent argument against renewable energy (RE). This paper demonstrates, throughthe Brazilian experience with ethanol, that economies of scale and technological advances lead to increased competitivenessof this renewable alternative, reducing the gap with conventional fossil fuels.? 2003 Elsevier Ltd. All rights reserved.

Keywords: Ethanol; Learning curve; Brazil

The discussions at the Johannesburg 2002 WorldSummit made clear that policies for renewable energy(RE) are essential to achieve sustainable developmentin a broad sense. Environmental protection, job cre-ation, alleviation of external debts in developing coun-tries, and security of supply are some of the key issuesto mention.A very common argument against RE is their eco-

nomic competitiveness against mainly fossil fuels. Theanswer to this argument is exactly the objective of theBrazilian Energy Initiative (BEI), which proposed aminimum global target of 10% of energy from renew-able sources, with the possibility of trading RE cer-ti=cates amongst countries [1]. The initiative aims atpushing governments to introduce renewables, even if

∗ Corresponding author. Tel.: +55 11 3030 6159; fax: +55 113030 6142.

E-mail address: oswaldol@cetesb.sp.gov.br (O. Lucon).

they cost more at present. A mandatory target on REacts on the demand side of large markets in developedcountries, lowering costs through the “learning curveeEect”. This approach is complementary to Type IIInitiatives proposed at Johannesburg: partnerships thatwill create the grassroots for the RE movement.For many products and services, unit costs decrease

with increasing experience. This eEect is often referredto as learning by doing, progress curve, experiencecurve or learning curve [2–4]. McDonald and Schrat-tenholzer [5] provide a good overview on the subject,stressing that for most products and services it is notthe passage of time that leads to cost reductions, butthe accumulation of experience. Leaving a technol-ogy on the shelf, unlike a =ne wine, will not make itbetter. Interruptions in production and use can causea “forgetting by not doing” eEect. The learning curverepresents graphically how market experience reducesprices for various energy technologies and how these

0961-9534/$ - see front matter ? 2003 Elsevier Ltd. All rights reserved.doi:10.1016/S0961-9534(03)00125-9

302 J. Goldemberg et al. / Biomass and Bioenergy 26 (2004) 301–304

reductions inKuence the dynamic competition amongtechnologies. It is a long-range strategic rather thana short-term tactical concept [6].Learning curves are empirical, with several bench-

marks throughout the world. One of the most impor-tant examples—if not the most important—is the oneprovided by Brazilian Alcohol Program (PROAL-COOL), established in 1975 with the purpose ofreducing oil imports by producing ethanol from sug-arcane. The program has positive environmental, eco-nomic and social aspects, and has become the mostimportant biomass energy program in the world [7].In 1975, 91Mt of sugarcane was produced, yielding

6 Mt of sugar and 555 km3 of ethyl alcohol (ethanol).In 2002, sugarcane production reached 320 Mt, yield-ing 22:3 Mt of sugar and 12:6 Mm3 of ethanol. In2002, the total land area covered by sugarcane planta-tions in Brazil was approximately 4:9 Mha (60% in theState of Sao Paulo). The average productivity of sug-arcane crops in Brazil is 65 t ha−1, but in S#ao PauloState there are mills with yields of up to 100 t ha−1.

In Brazil, ethanol is used in one of two ways: as anoctane enhancer and oxygenated additive to gasoline,blended in the proportion of 20–26% in volume ofanhydrous ethanol (99.6 Gay-Lussac (GL) and 0.4%water) to gasoline, a mixture called gasohol or inneat-ethanol engines, in the form of hydrated ethanolwith 95:5 GL.Since the creation of PROALCOOL in 1997, prices

received by ethanol producers were determined by thefederal government, as were the prices of fuels in gen-eral. In May 1997, the price of anhydrated ethanol wasliberalized, and the same occurred with the price ofhydrated ethanol in February 1999.Ethanol production costs were close to 100 US dol-

lars a barrel in the initial stages of the Program in 1980.Until 1985, as production increased, prices paid to pro-ducers reKected average costs of production, whichwere surveyed by a government mandate through theGet#ulio Vargas Foundation. During this initial phase,prices fell slowly reKecting the gains in agroindustrialyield and economies of scale captured by producers,and transferred to consumers through the pricing reg-ulation scheme. After 1985, however, prices were setat levels below the average costs of production, whilethe federal government tried to curb inKation by con-trolling the average costs of production, while the fed-eral government tried to curb inKation by controlling

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Fig. 1. Ethanol learning curve: prices, trends and progress ratios.

public prices, inclusive of fuels. Due to this factor,together with economies of scale, the price fell muchmore rapidly, as shown in Fig. 1. Prices paid to pro-ducers (made in terms of the internal currency, Real)are proxies for costs. However, in the medium andlong term, the high competition in the ethanol activ-ity has caused the prices to move towards productioncosts.The Progress ratio of the technology is the variation

of prices according to the cumulative sales. The lowerthe progress ratio, the more the drop in prices. Thus,an eQcient technology penetration is one that hasachieved low PRs. In US dollars, sugarcane ethanolproduced in Brazil has shown progress ratios of 93%(1980–1985) and 71% (1985–2002). For compari-son, there are European =gures [8] calculated for wind(PR=99% between 1981–1985 and PR=88% in 1985–2000), solar photovoltaics (PR= 77% in 1981–2000)and combined cycle gas turbines (PR=104%, i.e. costincreases between 1981–1989 and PR=81% in the1985–2002 period). Fig. 2 shows the price paid toalcohol producers compared to Rotterdam gasolineprices. For an easier comprehension of the end-useutility, prices were converted to US$ per GJ of eachfuel, assuming the low heating value of each.In the early stages of the alcohol program, ethanol

use became viable to consumers due to the pricingpolicy applied to fuels in Brazil. As the eQciency andcost competitiveness of ethanol production evolved

J. Goldemberg et al. / Biomass and Bioenergy 26 (2004) 301–304 303

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Fuels prices at the consumer level and currency exchange ratesurvey for the city of São Paulo — May/98 toFeb/03; Dieseldata available since Jun2001

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304 J. Goldemberg et al. / Biomass and Bioenergy 26 (2004) 301–304

over time, and fuel prices were liberalized, this sup-port was no longer needed and was not applied. Ofgreat signi=cance is the fact that the total amount ofinvestments in the agricultural and industrial sectorsfor the production of ethanol for automotive use in theperiod 1975–1989 reached a total of US$4.92 billion(US$ of 2001) directly invested in the program. Onthe other hand, savings with foregone imports evalu-ated at international prices, have amounted to US$52.1billion (Jan 2003 US$) from 1975 to 2002 [9,10].Presently, there are no subsidies for anhydrous or

hydrated ethanol production. Hydrated ethanol is soldfor 60–70% of the price of gasohol at the pump sta-tion, due to signi=cant reductions in production costs.These results show the economic competitiveness ofethanol when compared to gasoline. Considering thehigher consumption rates of neat-ethanol cars, the con-sumer is indiEerent between hydrated ethanol for aprice at the station of up to 80.67% of that from gaso-hol. Fig. 3 shows a comparison for the main trans-portation fuels used in Brazil in terms of the price paidin local currency (Real) and the exchange rates to theNorth American dollar. It demonstrates the long-termcompetitiveness of the ethanol fuel.

References

[1] Goldemberg J. The Brazilian energy initiative. Presentedat the Johannesburg World Summit on SustainableDevelopment; 2002.

[2] Dutton JM, Thomas A. Treating progress function as amanagerial opportunity. Academy of Management Review1984;9:235.

[3] Argote L, Epple D. Learning curves in manufacturing. Science1990;247:920–4.

[4] Argote L. Organizational learning: creating, retaining andtransferring knowledge. Dordrecht, Netherlands: Kluwer;1999.

[5] McDonald A, Schrattenholzer L. Learning rates for energytechnologies. Energy Policy 2001;29(4):255–61.

[6] International Energy Agency—IEA. Experience curves forenergy technology policy. Organisation for EconomicCo-operation and Development, Paris: 2000.

[7] Goldemberg J, Moreira JR. The alcohol program. EnergyPolicy 1999;27(4):229–45.

[8] Goldemberg J, Coelho ST, Lucon O. How adequate policiescan push renewables. Energy Policy, 22 February 2003,doi:10.1016/S0301-4215(03)00077-6, in press.

[9] Datagro. Costs of fuels and cumulative sales in Brazil andRotterdam. Sao Paulo: Datagro; 2003.

[10] Nastari PM. PoupanTca de divisas com o uso do #alcoolcombust#Uvel no Brasil (Savings by the use of ethanol fuel inBrazil). Sao Paulo: Informativo Datagro; January 2003.